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In a candid interview with Real Estate-Realtor Times editor Blanche Evans, Homestore CEO Mike Long talked about the challenges of getting a company turned around that has been vilified by its investors and customers, as well as embroiled in an arbitration with its leading traffic/advertising partner AOL.

The key to Homestore's survival, as Long sees it, is winning back customer loyalty by providing more value to Realtors and steering the company to behave in a more modest, realistic fashion as far as its ambitions and execution of service go. But there is a lot of disappointment in the company to overcome - Realtors had been nothing but targets to previous Homestore management. What is Long going to do to win disgruntled Realtors back? And will Realtors give him the chance to make amends?

Find out in Part II of this exclusive Real Estate-Realtor Times interview.

B.E.: What is your cash situation?

M.L.: It's markedly improved since January. We have made significant asset sales and we have reduced our burn rate. I can't speak to first quarter results, but we have reduced our work force by 1100 people and that would show up in a lower cash burn rate. The sale of consumer information for $130 million in cash is positive, and our current plan says we will be cash flow positive by the fourth quarter. Cash isn't the immediate concern that it was 90 days ago. As we go into 2003 and 2004, we have to demonstrate that our model is profitable.

B.E.: You are being forced to come up with a new business plan for Homestore, primarily based on subscriptions to Realtors and advertising. Can Realtor.com carry Homestore to profitability?

M.L.: We don't provide segment reporting on Realtor.com. I have selected disclosure which is not a public investor disclosure.

We are committed to produce consistent operating margins, and to do that, we need a diversified revenue model. The subscription fees are a part of the revenue model, and not even the majority of our revenues. We believe that advertising will rebound, and we are optimistic that it will be a viable piece of the business model. We are also a software provider to real estate professionals. All three of these revenue models can produce a comfortable operating margin. We can't afford to rely on one source for profitability. Diversification helps keep products competitively priced. It is a surprise to customers that subscriptions are not the majority of our revenues.

B.E.: Will you continue to pay MLSs for listings? And where does the Gold program stand?

M.L.: We pioneered the concept that the MLS data is valuable and that it is reasonable to pay them for access to the data, and we remain committed to doing that.

When prices were first established with the Gold program, there was no precedent - it wasn't based on market tests, and I don't know how they were established. Now, several years later, we should all be a lot smarter about what's reasonable market pricing. We are working with the Gold MLSs that $3 a listing is too high, and we are working to lower the fees, and we have continued to support the $1 for nonexclusive listings. Asking for lower prices is never pleasant, but they are business people, and the response has been good. We are getting a high renewal rate.

B.E.: How does your deal with Cendant stand? Weren't the majority of renewals due to ring up in March? How are the Cendant renewals shaping up?

M.L.: This is the case where the company got into trouble from a perceptions perspective.

At that time, with the dot-com valuation, Wall Street was using nonrevenue metrics and making them more important than revenues and profits. They looked at eyeballs, pageviews, and market share analysis, and to some degree, little focus was on profits. It was about getting big fast. Well, we know that profits do matter. One of the metrics they used was the number of ILEAD subscriptions we were getting and the rate at which they were growing. What happened was that in February last year, Cendant offered an attractive proposal to prime the pump. They agreed to pay for a year's subscription for their franchises. They gave them to their agents for free, and Homestore had a year to do individual selling. The company announced the entire group of Cendant agents, about 160,000, and they got added to existing subscribers of about 130,000, and then Wall Street is saying they are up to 300,000 and expect us to build on that base.

Renewals are going to contract, and some people didn’t even know they had them. And you can't visit with 160,000 agents in one year.

B.E.: It's not like you had their charge card numbers to pop renewals automatically.

M.L.: Exactly. We have been getting a reasonable number of renewals to add to the base, but Wall Street and we got caught up in going to 350,000 and 400,000.

I’m less concerned with the number of subscriptions than in who is using the product. We have lots of Realtors who bought a subscription and we provided no education to help them generate leads. They aren't happy because they didn't get leads.

When you have customers you can always find one that isn't happy and they aren't happy and so the impression is that ILEAD doesn’t generate leads. So when I read about an unhappy customer, I call that person. In ten percent of the cases, we aren't delivering value - they're in a market where consumers aren't online, for example, and then I recommend they cancel. But in 90 percent of markets, we sold the product with no follow up and support. So we are going to spend the better part of this year and next year to make sure that they are getting maximum value.

B.E.: What are you going to do about it?

M.L.: You have to have a large field support group. We are changing our commission plans for our sales and support. They were incentified to make the sale and move on - salespeople do what their compensation plans tell them. So we are changing our compensation plan to reward our field people not just for new sales but for follow-up, customer service and training. We have good people in the field.

The second thing is we are making significant investment in the customer care center in Scottsdale. The previous management did have some vision in building the facility, and we are enhancing it to provide better customer support and training. We just pioneered a complete online tutorial for ILEAD, and that goes back to customer care in Scottsdale, so if a Realtor has a question, they can get an immediate answer. That wasn't true six months ago. Customer satisfaction with the products is improving.

B.E.: What can the Realtor community expect from your management?

M.L.: They can expect a more predictable company that has a better idea of what it wants to be when it grows up. We provide media and technology solutions for professionals that connects them to consumers looking for a home and that is all we are - no more no less.

We will put a lot of attention on blocking and tackling in a business - high quality customer service, research and development with lots of customer involvement. We are going to be a more boring company - a lot less flash and a lot more execution.

You will see integration of assets, what was collected was valuable assets -software, real estate listings, web services and media services assets, but it wasn't integrated, and we had multiple sales forces calling on the same customer. So we will have better execution.

We have smaller ambitions as a company. The key stakeholders - employees, customers, shareholders have more modest expectations. We don't aspire to be a $10 billion company again. Our customers want value out of service, employees want to be proud and secure and appreciated in their jobs.

B.E.: We have thousands of Realtors reading our publication - what would you like to say to them?

M.L.: We do care about them. Good customer service is delivered one customer at a time, and we appreciate their patience and continued support. We plan to be there for them when they need us long term. If they believe that, we've got a chance to build a new Homestore.

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